You will leave this session with hands-on advice that will help you drive a better performance management cycle in your company. The seminar will begin with covering a case study on the implementation of a new performance management approach that led to the execution of a full pay-for-performance approach for a regional company operating in 14 countries in the Middle East. Then it will focus on practical tips in 3 main areas : • System design • Formal company communication • The role of managers This presentation was used at HR Summit and Expo 2013 www.hrsummitexpo.com

1. Linking Performance Management
And Pay For Performance
Sandrine Bardot – Compensationinsider.com

2. Agenda
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Quick case study
Tips for implementing a Pay-for-Performance system
Potential risks
 Enablers
 Bad PFP leads to disengagement
 Drivers of employee commitment
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Tips series 1 : technical aspects of system design
Tips series 2 : formal company communication
Tips series 3 : the role of managers
Additional resources
© Sandrine Bardot 2013

3. Case study

4. Why did we do it ?
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Old system was a mess :
Process not followed by managers
 No impact on pay nor career management
 Administrative nightmare
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Our objectives :
Introduce a pay-for-performance culture
 Encourage alignment between the different BUs
 IPO plans
 Share the wealth with employees
 Develop accountability and on-going feedback and
dialogue between managers and employees

© Sandrine Bardot 2013

5. The system
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Goals catalogue, year-on-year maintenance and sharing /
cascading of objectives
Employee self-evaluation
Introduction of mid-year review
Guided performance distribution curve
Moderation sessions across groups
Variable pool funding
Direct link to individually differentiated payouts (bonus and
increases)
Integration with other HR systems (succession management,
learning and development, payroll...)
© Sandrine Bardot 2013

6. Outcomes
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93% of employee self-appraisals on time (were not
mandated in the first year)
90% of manager ratings on time
Thousands of employees in 14 countries reviewed for
moderation of ratings in less than a month
Salary increase budget was controlled
Bonus payments differentiated by performance rating
Reduced lead-time to pay
© Sandrine Bardot 2013

7. What worked... and what didn’t
Positive
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Great employee participation
and feedback : some managers
talked performance with them for
the first time
Easy tool and user interface
made the move to technology a
breeze
Massive cost savings through
salary increase budget control
Improved succession planning
and training plan
© Sandrine Bardot 2013
Negative
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Moderation sessions not very well
received by managers
Pay decisions not very
collaborative due to the pool
distribution
Not enough time for training on
how to give feedback
No communication on the results
of the appraisal round
Proper pay discussions not held in
many departments

8. Tips for implementing PFP

9. Potential risks
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A conflict between :
 Employee
and manager working together to improve
performance (problem solving, on going, collaborative
approach with accountability on both sides)
 And opposing interests when discussing the pay and
reward impact of the performance appraisal
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Potentially more arguments about the appraisal
results, as the financial impact makes both parties
more rigid in their approach
© Sandrine Bardot 2013

10. Enablers
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Top leadership buy-in is a must
On-going dialogue with stakeholders for design
IT systems and integration with other HR tools
Time... Trial and error... Continuous monitoring
Understand that each system is unique
Accept that there is no perfect way to assess
employee contributions accurately
© Sandrine Bardot 2013

11. Bad PFP leads to disengagement
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2/3 of employees are unhappy with how pay-forperformance works at their organisation.
On average, 27% of dissatisfied employees have
actually reduced the amount of effort they put in at
work. It’s 35% for senior leaders (self-declared) !
(Source : CLC)
© Sandrine Bardot 2013

12. Influencers of employee commitment
Formal plan communication
Manager communication
22%
How organisations pay
Incentive satisfaction
48%
How organisations communicate about pay
Process fairness perception
Actual fairness of pay
distribution
64%
Employee commitment
57% higher vs effort of strongly not committed
Source : CLC
Discretionary effort - Impact on company results
© Sandrine Bardot 2013

13. Tips 1 - Design aspects
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Must :
 Align
individual performance expectations with
organisational goals
 Strong line of sight
 Avoid giving too many objectives – focus on core
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Recommend : a fuller assessment of performance
 Results
and behaviour-based (competencies)
 360-degree reviews ? (be careful before deciding)
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Consider an even number of ratings ?
© Sandrine Bardot 2013

14. Tips 1 - PFP is a continuum
Ratings
No rating Uncontrolled ratings
Guided distribution
Forced distribution
High performers
1.5 to 2 x
average
No differentiation
>2x, within salary range
Position in SR irrelevant
Low performers
Small payment
No increase
© Sandrine Bardot 2013
Small increase for 2d lowest rating

15. Tips 1- Support distribution fairness
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Budget or variable pool ?
Merit recommendations :
Based on performance rating only / also include another
factor like position in salary range ?
 Discretionary / “range in the cell” ?
 Aggressive / moderate differentiation between cells ?
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Other data included ? (last increase, other employees
in team, bonus info...)
Training and HR support
How / Will you hold managers accountable ?
© Sandrine Bardot 2013

16. Tips 2 – Communication of results
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Go beyond regular communication on tool and system
Why ? For fairness, accountability and prevention of abuse
Decide on reasonable level of transparency :
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By grade, unit, job family, a combination ?
Average and/or minimum – maximum ?
Communicate overall results of performance appraisal and
pay decisions:
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Performance rating
Pay increase
Bonus
© Sandrine Bardot 2013

17. Tips 3 - The role of managers
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Extract from the “10 manager drivers to improve
engagement list” from CLC study, 2009
1. Provide fair and accurate informal feedback
 2. Emphasize employee strengths in performance reviews
 3. Clarify performance expectations
 6. Amplify positive employee performance traits and filter
negative effects
 7. Connect employees with the organizations’ strategy and its
success
 10. Demonstrate credible commitment to employee development

© Sandrine Bardot 2013

18. Tips 3 -What’s in it for me as manager
Outcomes of good performance mgt
Benefits
Manager and employee problem-solve
together
Non confrontational resolution of issues
Identify which employees :
- can benefit from job training
- to develop for greater responsibilities
Motivated employees with the right skills
to perform the job
If you’re not replaceable, you’re not
promotable
Help each employee to understand
his/her contribution to company success
Increased motivation and discretionary
effort
Identify performance problems early on
They don’t grow too large to be handled
Remove barriers to performance that are
not under employee control
Better productivity
Documentation for disciplinary action
Protection from unjustified legal action
© Sandrine Bardot 2013

19. Tips 3 - Beyond “the form”
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Explain that you are developing management tools,
not an HR program and not just a tool :
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Why and how to differentiate between employees
What to discuss at a moderation meeting
How to give constructive feedback
How to manage poor performers
How to develop individual development plans
How to communicate about pay
How to recognise performance (beyond pay)
© Sandrine Bardot 2013

20. Additional resources
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Linking pay to performance – HumanResourcesIQ podcast
Pay for Performance does not always pay – HBR article
Helping managers talk about pay – 3 tips from
Corporate Executive Board survey at Bloomberg
Why managers don’t manage pay – CMC compensation
Group blog post
The history of performance reviews (an infographic)
Why is "soft stuff” so hard really, at least to assess ?
© Sandrine Bardot 2013

21. And a final reminder….
© Jim Davis

22. Thank you !
+971 566 172 864
Sandrine@Compensationinsider.com
http://CompensationInsider.com
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Sandrine Bardot
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